Ismael Gonzalez watches his friend's tent on 19th and Shotwell streets in San Francisco's Mission District on Thursday, November 11, 2016. Gonzalez is homeless and works various simple labor jobs. (Dan Chambers/Special to S.F. Examiner)

The mayor told the San Francisco Examiner on Thursday that the defeat of Prop. K “does challenge us because we have expectations to get a lot more people off the streets out of tents into homes in a more aggressive way.”

But voters apparently do want The City to invest more in these vital services and the mayor is vowing to rebalance the budget to offset at least some, if not all, of the sales tax loss, which totals $37.5 million in the current fiscal year and $155 million in the subsequent fiscal year.

The money was to pay for such things as more mental health service workers to respond to homeless residents and an expansion of shelter beds.

The San Francisco Municipal Transportation Agency was counting on the revenues for years to come to pay for capital improvements, road repaving and pedestrian safety projects, and continue free Muni for youth, seniors and the disabled.

The mayor’s vow is surely welcomed news for the 66 percent of the voters who approved Proposition J, which created a special fund for spending $155 million annually on Muni and homeless services — but city officials made it clear that enacting Prop. J was contingent on the sales tax passing.

On Thursday, the mayor enacted Prop. J’s escape clause and canceled the fund in a letter sent to Board of Supervisors President London Breed and City Controller Ben Rosenfield.

“Unfortunately, as a result of the recent election, The City’s previously balanced budget has been impacted,” Lee wrote, though he also noted how well Prop. J did. “Clearly, San Franciscans want us to invest more in solutions to homelessness and improvements to our roads and transportation network,” Lee wrote.

The mayor has directed Department of Homelessness Director Jeff Kositsky and San Francisco Municipal Transportation Agency Director Ed Reiskin to “identify investments that must be made despite the cancellation of these set-asides.”

To fund these “investments” the mayor said he has asked his budget director, the Controller’s Office and the Board of Supervisors to “identify spending reductions or additional revenue to fund some of these needed investments to assist our most vulnerable residents.”

The mayor said a “rebalancing plan” detailing the changes in spending and revenues “necessary to bring the budget back into balance” will be completed “in the coming weeks.”

Paul Rose, the MTA spokesperson, said they are also exploring new funding ideas. “We will work with Mayor Lee to explore new voter measures to support transportation priorities in the future,” Rose said.

There isn’t another election expected until 2018.

Why Prop. K failed is a matter of debate. The mayor has faced criticism from progressive politicians for not focusing on the sales tax measure, but instead prioritizing the defeat of several progressive ballot measures that would have eroded the mayor’s power. The mayor’s top aide Tony Winnicker took a leave of absence to run a more than $2 million campaign against those progressive measures and succeeded in defeating all four of them.

“The mayor missed his chance to focus his attention on what’s right for The City and work hard for [Prop.] K,” said Supervisor John Avalos, who helped craft the proposal and place it on the ballot. “The impact on our budget, especially next fiscal year’s budget, will be huge. We will have our hands tied in addressing our enormous transportation and homelessness needs.”

The mayor’s spokesperson Deirdre Hussey blamed the loss on “a ballot that failed to offer voters a vision for our city and instead offered them a laundry list of measures that were polarizing and politicized.”

Hussey added, “We know that when we have worked together and provide voters with clear vision, we pass measures that support transportation and homelessness, like we did in 2011, 2014 and June of this year.”

David Latterman, a political consultant, said at a political talk last week that passing general sales taxes is often an uphill battle.

“This one actually didn’t even come close,” Latterman said. “This is a bit of a loss for the mayor, who wanted this.”

The current sales tax rate of 8.75 percent drops to 8.5 percent next year. It would have increased by .75 percent, to a total of 9.25 percent if Prop. K passed.

Peskin had criticized the sales tax proposal for “balancing our budget on the backs of the poorest and most vulnerable in our city” and was even the lone vote against The City’s $9.6 billion budget for the current fiscal year since it assumed the revenues, which he thought was bad policy, from the yet-approved tax hike.

Supervisor Scott Wiener, who helped put the measure on the ballot, called the defeat a “setback.”

“The defeat of the sales tax is a blow to our ability to house homeless people and invest in our transportation systems,” Wiener said. “It’s a setback, and The City is worse off for it. We will need to work hard to backfill these needs, which will entail trade offs.”

Similarly, Supervisor Katy Tang spoke of the need to allocate funding to these transit and homeless services.

“The Board of Supervisors and the Mayor’s Office will need to work collaboratively to re-balance the budget and truly prioritize how we will solve The City’s most pressing needs,” Tang wrote in an email.